Limited Liability Partnership (LLP) is a new form of partnership in India, introduced in the year 2008 and regulated by The Limited Liability Partnership Act 2008.
As the name suggest liability of the partners are limited to the extent of their share. The main object is that one partner should not be liable for the act or negligence of other partner. It combines the features of partnership and a company.
People generally got confused with the selection whether to go for Company or Partnership or LLP. LLP is for those who want to run business as a separate entity and with limited liability, with less compliance and.
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Documents Required for LLP
- Aadhar card and PAN card of all partners. (Passport in case of NRI or Foreign Partner)
- Passport Size Photos of all partners.
- Bank statements of all partners not older than 2 months.
- 2 Proposed Names for Firm
- Business Object
- Address Proof of place of business (Electricity bill or Rent Deed or Registry)
- Contact Details of all partners (Email id and Mobile No)
Advantages of LLP
Limited Liability: Not like as partnerships, Liability of Partners are limited to the extent of their capital contribution only, hence no impact on partners personal assets.
Separate Legal Entity: As a Company, LLP do enjoys separate legal entity. The Limited Liability Partnership Act 2008, defines LLP as a separate legal entity then its partners.
Less Compliance: Compliance under LLP is less in compare to Companies; even the audits are also not required for every LLP.
Difference between Limited Liability Partnership and Partnership
| PARTICULARS | LIMITED LIABILITY PARTNERSHIP | PARTNERSHIP |
|---|---|---|
| GOVERNED BY: | Limited Liability Act, 2008 | The Partnership Act, 1932 |
| TIME For Incorporation | 7-10 days in complete process | 5-7 days |
| LIABILITY | Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner. | Unlimited. Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets. |
| TAX LIABILITY | 30%+ health and education cess | 30%+ Health and education cess |
| PRINCIPAL/AGENT RELATIONSHIP | Partners act as agents of LLP and not of the other partners. | Partners are agents of the firm and other partners. |
| DIRECTOR IDENTIFICATION NO./ DESIGNATED PARTNER IDENTIFICATION NO. | Each Designated Partners is required to have a DPIN before being appointed as Designated Partner of LLP. | The partners are not required to obtain any identification number |
| DIGITAL SIGNATURE | As forms are filled electronically, therefore one Designated Partner should have Digital Signatures. | There is no requirement of obtaining Digital Signature |
| ANNUAL FILING | Annual Statement of accounts and Solvency & Annual Return is required to be filed with Registrar of Companies every year. | No return is required to be filed with Registrar of Firms |
| AUDIT OF ACCOUNTS | All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008. | Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax Act |
| CREDIT WORTHINESS OF ORGANIZATION | Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company. | Creditworthiness of firm depends upon goodwill and creditworthiness of its partners |
| NUMBER OF MEMBERS | Minimum 2 partners and there is no limitation of maximum number of partners. | Minimum 2 and Maximum 20 |
| REGISTRATION | Registration with Registrar of LLP required. | Registration is optional |
Frequently Asked Questions
What is the Structure of an LLP?
LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.
Other countries where LLP can be formed?
The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.
Whether an entity which has objectives like “charitable or other not for profit objectives” would be able to set up under LLP Act?
No. The essential requirement for setting LLP is ‘carrying on a lawful business with a view to profit’.
Nature & extent of liability of a partner of an LLP?
Every partner of an LLP would be, for the purpose of the business of the LLP, an agent of the LLP but not of the other partners. Liability of partners shall be limited except in case of unauthorized acts, fraud and negligence. But a partner shall not be personally liable for the wrongful acts or omission of any other partner. An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership. The liabilities of LLP shall be met out of the property of the LLP.
Whether every LLP would be required to maintain and file accounts?
An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A “Statement of Accounts and Solvency” in prescribed form shall be filed by every LLP with the Registrar every year.
Whether any Annual Return would be required to be filed by an LLP?
Every LLP would be required to file with ROC, every year, an Annual Return, contents of which would be prescribed under rules.
Whether the Registrar would have any power to call for information from LLPs?
Registrar would have power to obtain such information which he may consider necessary for the purposes of carrying out the provisions of the Act, from any designated partner, partner or employee of the LLP. He would also have power to summon any designated partner, partner or employee of any LLP before him for any such purpose, in case the information has not been furnished to him or in case the Registrar is not satisfied with the information furnished to him.
Whether other business entities like firm or company would be able to convert themselves into LLP?
Yes. The LLP Act contains enabling provisions pursuant to which a firm (set up under Indian Partnership Act, 1932) and private company or unlisted public company (incorporated under Companies Act) would be able to convert themselves into LLPs. Provisions of clause 58 and Schedule II to Schedule IV to the Act provide procedure in this regard.
Whether LLP would be able to convert itself into company under the Companies Act, 2013?
Yes as per latest amendments of companies act 2013. And LLP can now get converted into company but after following certain procedure and with certain limitations and boundations.
Whether two LLPs would be allowed to merge?
Provisions of clauses 60 to 62 of the Act provide for the manner in which compromises or arrangements including mergers and amalgamations involving LLPs shall be allowed.